Section 80P deduction for co-operative banking can survive dealings with non-members when banking activity is otherwise established.

Section 80P(2)(a)(i) distinguishes between carrying on the business of banking and providing credit facilities to members. The members-only restriction applies to the credit-facility limb, not to banking business, so a co-operative bank does not lose the deduction merely because it transacts with non-members. The analysis also notes that where loan applications were made before membership but membership was obtained before disbursement and interest was received from members, the credit-facility condition was satisfied on the facts. The provision was therefore read as allowing deduction for income from banking business and, on the alternative factual footing, for credit facilities to members as well.

---

---

Issues: (i) Whether a co-operative bank carrying on banking business with both members and non-members is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. (ii) Whether, on the alternative footing of providing credit facilities, the assessee's income was still eligible for deduction under section 80P(2)(a)(i).

Issue (i): Whether a co-operative bank carrying on banking business with both members and non-members is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The provision distinguishes between "carrying on the business of banking" and "providing credit facilities to its members". The restriction that the activity must be confined to members attaches only to credit facilities and not to banking business. The disjunctive wording of the clause supports this reading, and the provision does not warrant importing a members-only condition into the banking limb. The banking licence and regulatory framework also supported the conclusion that the assessee was carrying on banking business.

Conclusion: The deduction under section 80P(2)(a)(i) was allowable to the assessee in respect of income from banking business, even though the business extended to non-members.

Issue (ii): Whether, on the alternative footing of providing credit facilities, the assessee's income was still eligible for deduction under section 80P(2)(a)(i).

Analysis: The material showed that although loan applications may have been made before membership, membership was obtained before disbursement and interest was received from members. The condition of providing credit facilities to members was therefore satisfied on the facts found.

Conclusion: The assessee was entitled to the deduction even on the alternative footing.

Final Conclusion: The assessee's claim for deduction under section 80P(2)(a)(i) succeeded, and the appeal was allowed only to that extent, with the remaining ground not pressed.

Ratio Decidendi: Under section 80P(2)(a)(i), the members-only restriction applies to credit facilities to members and not to the business of banking, so a co-operative society engaged in banking does not lose the deduction merely because it transacts with non-members.

---